Regulatory Matters

3 Months Ended

Mar. 31, 2023

Broker-Dealer, Net Capital Requirement, SEC Regulation [Abstract]

Note 10. Regulatory Matters

Pursuant to Tennessee banking law, Pinnacle Bank may not, without the prior consent of the Commissioner of the Tennessee Department of Financial Institutions (TDFI), pay any dividends to Pinnacle Financial in a calendar year in excess of the total of Pinnacle Bank's retained net income for that year plus the retained net income for the preceding two years. Additionally, approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of Pinnacle Bank to fall below specified minimum levels. Under Tennessee corporate law, Pinnacle Financial is not permitted to pay dividends if, after giving effect to such payment, it would not be able to pay its debts as they become due in the usual course of business or its total assets would be less than the sum of its total liabilities plus any amounts needed to satisfy any preferential rights if it were dissolving. In addition, in deciding whether or not to declare a dividend of any particular size, Pinnacle Financial's board of directors must consider its and Pinnacle Bank's current and prospective capital, liquidity, and other needs. In addition to state law limitations on Pinnacle Financial's ability to pay dividends, the Federal Reserve imposes limitations on Pinnacle Financial's ability to pay dividends. Federal Reserve regulations limit dividends, stock repurchases and discretionary bonuses to executive officers if Pinnacle Financial's regulatory capital is below the level of regulatory minimums plus the applicable 2.5% capital conservation buffer.

In addition, the Federal Reserve has issued supervisory guidance advising bank holding companies to eliminate, defer or reduce dividends paid on common stock and other forms of Tier 1 capital where the company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, the company’s prospective rate of earnings retention is not consistent with the company’s capital needs and overall current and prospective financial condition or the company will not meet, or is in danger of not meeting, minimum regulatory capital adequacy ratios. Recent supplements to this guidance reiterate the need for bank holding companies to inform their applicable reserve bank sufficiently in advance of the proposed payment of a dividend in certain circumstances.

During the three months ended March 31, 2023, Pinnacle Bank paid $26.3 million of dividends to Pinnacle Financial. As of March 31, 2023, based on the criteria noted above Pinnacle Bank could pay approximately $981.7 million of additional dividends to Pinnacle Financial. Since the fourth quarter of 2013, Pinnacle Financial has paid a quarterly common stock dividend. The board of directors of Pinnacle Financial has increased the dividend amount per share over time. The most recent increase occurred on January 18, 2022 when the board of directors increased the dividend to $0.22 per common share from $0.18 per common share. During the second quarter of 2020, Pinnacle Financial issued 9.0 million depositary shares, each representing a 1/40th fractional interest in a share of Series B noncumulative, perpetual preferred stock (the "Series B Preferred Stock") in a registered public offering to both retail and institutional investors. Beginning in the third quarter of 2020, Pinnacle Financial began paying a quarterly dividend of $16.88 per share (or $0.422 per depositary share), on the Series B Preferred Stock. The amount and timing of all future dividend payments by Pinnacle Financial, if any, including dividends on Pinnacle Financial's Series B Preferred Stock (and associated depositary shares), is

subject to discretion of Pinnacle Financial's board of directors and will depend on Pinnacle Financial's receipt of dividends from Pinnacle Bank, earnings, capital position, financial condition and other factors, including regulatory capital requirements, as they become known to Pinnacle Financial and receipt of any regulatory approvals that may become required as a result of each of Pinnacle Financial's or Pinnacle Bank's financial results.

Pinnacle Financial and Pinnacle Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Pinnacle Financial and Pinnacle Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Pinnacle Financial's and Pinnacle Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require Pinnacle Financial and its banking subsidiary to maintain minimum amounts and ratios of common equity Tier 1 capital to risk-weighted assets, Tier 1 capital to risk-weighted assets, total risk-based capital to risk-weighted assets and Tier 1 capital to average assets.

As permitted by the interim final rule issued on March 27, 2020 by the federal banking regulatory agencies, each of Pinnacle Bank and Pinnacle Financial has elected the option to delay the estimated impact on regulatory capital of Pinnacle Financial's and Pinnacle Bank's adoption of ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which was effective January 1, 2020. The initial impact of adoption of ASU 2016-13, as well as 25% of the quarterly changes in the allowance for credit losses subsequent to adoption of ASU 2016-13 (collectively the “transition adjustments”), was delayed until December 31, 2021. As of January 1, 2022, the cumulative amount of the transition adjustments became fixed and will be phased out of the regulatory capital calculations evenly over a three year period, with 75% recognized in 2022, 50% recognized in 2023 and 25% recognized in 2024. Beginning on January 1, 2025, the temporary regulatory capital benefits will be fully reversed.

Management believes, as of March 31, 2023, that Pinnacle Financial and Pinnacle Bank met all capital adequacy requirements to which they are subject. To be categorized as well-capitalized under applicable banking regulations, Pinnacle Bank must maintain certain total risk-based, Tier 1 risk-based, common equity Tier 1 and Tier 1 leverage ratios as set forth in the following table and not be subject to a written agreement, order or directive to maintain a higher capital level. The capital conservation buffer is not included in the required ratios of the table presented below. Pinnacle Financial's and Pinnacle Bank's actual capital amounts and resulting ratios, not including the applicable 2.5% capital conservation buffer, are presented in the following table (in thousands):


	Actual				Minimum Capital Requirement				Minimum To Be Well-Capitalized (1)
	Amount		Ratio		Amount		Ratio		Amount		Ratio
At March 31, 2023
Total capital to risk weighted assets:
Pinnacle Financial	$	4,720,387	12.4	%	$	3,049,413	8.0	%	$	3,811,766	10.0	%
Pinnacle Bank	$	4,417,066	11.6	%	$	3,041,133	8.0	%	$	3,801,416	10.0	%
Tier 1 capital to risk weighted assets:
Pinnacle Financial	$	3,992,847	10.5	%	$	2,287,060	6.0	%	$	2,287,060	6.0	%
Pinnacle Bank	$	4,118,526	10.8	%	$	2,280,849	6.0	%	$	3,041,133	8.0	%
Common equity Tier 1 capital to risk weighted assets
Pinnacle Financial	$	3,775,599	9.9	%	$	1,715,295	4.5	%	N/A		N/A
Pinnacle Bank	$	4,118,404	10.8	%	$	1,710,637	4.5	%	$	2,470,920	6.5	%
Tier 1 capital to average assets (*):
Pinnacle Financial	$	3,992,847	9.6	%	$	1,660,651	4.0	%	N/A		N/A
Pinnacle Bank	$	4,118,526	9.9	%	$	1,656,143	4.0	%	$	2,070,179	5.0	%


	Actual				Minimum Capital Requirement				Minimum To Be Well-Capitalized (1)
At December 31, 2022
Total capital to risk weighted assets:
Pinnacle Financial	$	4,584,292	12.4	%	$	2,949,276	8.0	%	$	3,686,595	10.0	%
Pinnacle Bank	$	4,282,742	11.6	%	$	2,941,082	8.0	%	$	3,676,353	10.0	%
Tier 1 capital to risk weighted assets:
Pinnacle Financial	$	3,888,100	10.5	%	$	2,211,957	6.0	%	$	2,211,957	6.0	%
Pinnacle Bank	$	4,015,550	10.9	%	$	2,205,812	6.0	%	$	2,941,082	8.0	%
Common equity Tier 1 capital to risk weighted assets
Pinnacle Financial	$	3,670,851	10.0	%	$	1,658,968	4.5	%	N/A		N/A
Pinnacle Bank	$	4,015,427	10.9	%	$	1,654,359	4.5	%	$	2,389,629	6.5	%
Tier 1 capital to average assets (*):
Pinnacle Financial	$	3,888,100	9.7	%	$	1,595,457	4.0	%	N/A		N/A
Pinnacle Bank	$	4,015,550	10.1	%	$	1,591,502	4.0	%	$	1,989,378	5.0	%

(1) "Well-capitalized minimum Common equity Tier 1 capital to risk weighted assets and Tier 1 capital to average assets are not formally defined under applicable banking regulations for bank holding companies.

(*) Average assets for the above calculations were based on the most recent quarter.

- Definition

The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union.

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